Airfare pricing process & strategies

1. AFFILIATED WITH

8. • Responsibility of Airline Price Analyst

9. • ATPCO

13. Pricing tactics can be broadly categorized as:
(1) Fare actions and,
(2) Adjustments to fare rules and/or restrictions.
Normally, daily pricing activity involves both
tactics.

14. Fare actions involve changes—increases or
reductions — to actual fare levels, in contrast to
the rules, restrictions, and/or footnotes that
accompany most fares.
Changes can be market specific, regional, or
mass market in scope.

15. Introductory fares. When a carrier begins
service in a new market, it typically offers
unrestricted low fare – also called Market
penetration pricing
System excursion-fare. During seasonally weak
traffic periods, carriers frequently offer a system
wide sale of excursion fares. (7 to 10 days)

16. • System business-fare sales.
• Connect market sales.
• Target segment pricing.
• Flight-time-specific.
• Mileage-based pricing.
• Zone pricing.
• Value-added pricing.

17. Adjusting Rules and Restrictions. This
second set of tactics involves the periodic
adjustment of rules and restrictions that
accompany most fares rather than the dollar
amount of the fares.

18. Common rules and restrictions tactics include
the following:
• Advance purchase requirements.
• One-way versus round-trip purchase.
• Minimum or maximum stays.
• Fare penalties.
• Directional pricing.
• Peak and off-peak pricing.
• Sales, ticketing, and travel windows.

19. The decision to use any one, or a
combination, of the tactics is essentially a
decision to raise or lower a fare. For
example, increasing the advance purchase
restriction from 3 to 7 days on a
discounted business fare will force a
certain number of passengers to buy the
next higher fare.

20. 1. Subtract dilution. Dilution results from those
passengers willing to pay full fare.
2. Subtract refunds. Airlines normally obligate
themselves through the so-called
guarantees to pay back.
3. Subtract advertising. To the extent that
previously unbudgeted funds are catered.
4. Subtract additional variable passenger costs.
Traffic liability insurance, food, and reservations
fees are the expenses

21. 5. Add spill. When a newly introduced fare is
especially low and is matched by all
major competitors in the market, it has the
potential to stimulate primary demand.
6. Add rejected demand by other airlines. At
times, certain airlines will tightly restrict the
number of seats sold at a particular discounted
fare.

22. Steps in Analyzing a Fare Increase. In the
case of a fare increase, there are fewer factors
to consider in estimating the net economic
impact.
The formula becomes simply: revenue
gain or loss from elasticity plus passenger
variable costs avoided. With the introduction
of a fare increase, spin and rejected demand
are irrelevant. Likewise, there is no potential

23. The objective of inventory management is to
maximize individual flight revenue. In the
simplest terms, inventory analysts face the task of
selling as many seats as possible at the highest
possible fares. This usually means making available an
adequate number of lower-fare seats far in advance of
the departure date in order to accommodate price-sensitive
business travelers. It’s a tricky balancing act
that requires a keen understanding of the competitive
dynamics and traffic composition of individual markets
and flights.

24. Pricing Behavior and Non-price Characteristics in
the Airline Industry (Advances in Airline
Economics) by James Peoples
The Future of Pricing: How Airline Ticket Pricing Has
Inspired a Revolution by E. Andrew Boyd
Air Transport by John Wensveen